Rogers Corporation

Good afternoon. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rogers Corporation December Investor and Analyst Conference Call. And I will now turn the call over to your host, Mr. Steve Haymore, Director of Investor Relations. Thank you, Mr. Haymore. You may begin.

Thank you, and good afternoon, everyone. Welcome to the Rogers Corporation December Investor and Analyst Conference Call. The slides accompanying today's call can be found on the Investors section of our website. Before we begin, I would like to note that statements in this conference call that are not strictly historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and should be considered as subject to the many uncertainties that exist in Roger's operations and environment. These uncertainties include economic conditions, market demands, and competitive factors. Such factors could cause actual results to differ materially from those in any forward-looking statement. Also, the discussions during this conference call may include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the slide deck for today's call. With me today is Bruce Hoechner, President and CEO, Colin Gavea, Senior Vice President and General Manager of EMS, who will become President and CEO following Bruce's retirement on December 31st, and Ram Mayampouris, Senior Vice President and CFO. I will now turn the call over to Bruce.

Thanks Steve. Hello everyone and thank you for joining. Today we want to take the opportunity to reconnect with our shareholders to discuss what Rogers has accomplished over the past year, the initiatives we've implemented to optimize our operations, and how we plan to capitalize on the opportunities ahead. Before we dive in, I'd like to provide more details on the executive transition we announced a few weeks ago. Over the past decade, Rogers has transformed itself into a highly respected, growth-oriented, innovative global specialty materials company. I am extremely proud of what we have accomplished, and after leading Rogers for more than 11 years, I believe that now is the right time for a new leader to take the helm. I will be retiring at the end of the year, and the board is named Colin as the next CEO. This announcement was the culmination of a thoughtful and robust succession planning process undertaken by the board to ensure continuity of leadership and ongoing success for the company. I've known Colin for almost 20 years, having worked with him here at Rogers as well as other companies. For those who don't know Colin, he joined Rogers in 2019 to lead our elastomeric material solutions or EMS business following an extensive career in specialty chemicals and material manufacturing. Throughout his tenure, Colin has made significant contributions to Rogers. More specifically, he has led the development of Rogers' overall strategy to capitalize on the EV opportunity, and he has positioned Rogers to be a leader in these markets. Another core responsibility of Colin's has been driving the company's M&A strategy with a focus on expanding our capabilities and product portfolio in key global markets. This includes the recent acquisition of Silicon Engineering, which Colin will discuss more later in the call. His experience building global, cross-functional, and collaborative teams has been critical. Within EMS, he has focused the business to be more market-driven, optimize the R&D structure, fixed operations issues, and successfully integrated silicon engineering. These efforts have been a catalyst for the nearly 20% growth in EMS revenue since 2019. The broader business has benefited greatly from his operational expertise and leadership, as he has executed on plans to improve the processes, tools, and the teams in place across Rogers. His understanding of our business and markets and relevant technologies will be critical as Rogers continues to build on its strategic plan and deliver long-term value to shareholders. I am confident in the company's future under Colin's leadership and look forward to witnessing Rogers' success for many years to come. Now turning to the business. For 190 years, Rogers has been forward thinking, identifying and acting upon industry trends as well as technology advancements to enable our growth. Since I became CEO in 2011, we have oriented our business and product portfolio around high value growth opportunities to profitably expand the business. With unmatched market leadership positions, a strong financial profile, and an experienced leadership team, we have an excellent foundation to drive long-term growth and value. For those new to Rogers, we are an agile, innovative, and reliable partner for leaders in the automotive, aerospace and defense, clean energy, and portable electronics industries. Colin will provide more details on the fast-growing opportunities we have in EV, ADAS, and other markets later in the call. At its core, Rogers is a materials technology company and our deep portfolio of highly engineered solutions across our EMS and advanced electronic solutions or AES business units enables us to establish unrivaled market positions. We have developed the technical expertise and innovation capabilities to help our diverse customer base solve some of their toughest challenges. Our deep bench of material science experts collaborate directly with customers to create differentiated solutions. These capabilities have been on full display during this past year as we have captured major design wins across our business. This is especially true in the EV space where we have secured significant standard setting wins by leveraging our battery and power electronic solutions to address the challenges of global automotive leaders. We are focused on developing the right products for the right markets. Additionally, our strong financial profile allows us to invest for the future. Over the past year, we have not slowed our investments. In fact, our investments have increased. Seventy percent of our CapEx this year has gone towards new capacity and regional expansions to capitalize on the accelerating EV opportunity. Our investments are not limited only to new factories, but also in R&D and other capabilities that will support the growth and scaling of the business. Finally, execution will be critical for Rogers' next chapter. We have a deep leadership bench with the right mix of experience and industry knowledge to support the company's growth plans. This team is highly dedicated and prepared to move the company forward. To wrap up, I am proud of the work that our more than 3,600 employees have done to execute against our strategy and lay important groundwork for the continued success of Rogers. We have not only delivered tremendous value to our stakeholders over many years, but through it all, we have maintained our integrity and commitment to safety and sustainability. I know I am leaving the company with a strong foundation and in the hands of a talented team as Rogers enters its next chapter. This will be my final call with the investment community. I've enjoyed our many conversations over the past 11 years, and I appreciate your time and commitment to understanding our business. I'd also like to thank our customers across the globe. I greatly appreciate your support and partnership, and I'm incredibly proud that Rogers was able to play a small role in your success. Finally, to each of our Rogers employees across the world, I want you to know that it's been an honor and a privilege to work with you. The commitment and hard work that define the Rogers culture is highly unique, and I will always be grateful for everything you've done to better our company. Thank you. With that, I'd like to turn it over to our next CEO, Colin.

Thanks, Bruce, and hello, everyone. I'm thrilled to take the torch from Bruce, who has contributed so much over the past 11 years at Rogers. He has expanded our portfolio solutions that address customer needs and championed the development of a strong culture that values safety, innovation, inclusion, and trust. This culture is one of our key differentiators and is something we will leverage in the coming years to further grow Rogers. Bruce has also been a great mentor and friend to me over the years, and I deeply appreciate his support and guidance. For those who don't know me, prior to joining Rogers in 2019, I led Eastman's $2.7 billion chemical intermediates business unit, where I helped create the organizational structure, mission, vision, and strategy to drive revenue growth and profitability. Prior to Eastman, I held key leadership positions at Dow Chemical, the Roman Haas Company, and ICI. Additionally, I spent five years serving as an officer in the U.S. Army. All of these roles and experiences were formative in my development as a leader and allow me to bring a unique perspective to Rogers. As a member of the Rogers leadership team, I've been central to key decisions about our business strategy, investment priorities, innovation choices, and helping to build a winning culture. I've traveled extensively around the globe, meeting with customers and collaborating with teams across North America, Europe, and Asia. Together, we've developed new solutions, attracted new customers, strengthened existing relationships, and worked to expand our manufacturing footprint to be positioned closer to critical growing end markets. There are many reasons why I'm excited about Rogers' prospects. First, I'm continuously impressed by the strong talent we have at Rogers. The Rogers team has shown an unwavering commitment to this company and our customers and are dedicated to growing and expanding our business. Second, we are executing a proven strategy. Over the past three years, I've championed development of our current strategic plan, which provides us with a clear path to delivering long-term value for our employees, shareholders, and other stakeholders. We have already demonstrated this is a winning strategy by building leadership positions in dynamic and fast-moving markets. We will continue to leverage this formula moving forward. We are extremely well positioned to capitalize on several long-term secular growth opportunities. Before discussing our strategy, I'd like to touch on our year-to-date results on slide five. As of September 30th, revenues grew to $747.5 million, up 6.4% year-over-year. This growth was driven by strong EV-HEV sales, which increased approximately 40% year-over-year, and double-digit growth in general industrial revenues. We are especially pleased with the strong traction we are gaining in the EV market, and I'll discuss shortly the capacity expansions underway to support this growth. Consistent with other companies in our industry, our performance was tempered by macroeconomic challenges, including COVID-related restrictions in China and ongoing supply chain issues. These factors impacted sales in the wireless infrastructure, ADAS, and portable electronics markets. These headwinds and other factors resulted in a significant decline in gross margin. Let me be clear. Improving our profitability is our top priority. While the environment has been challenging, we have identified a number of operational improvements and have taken decisive action to deliver better financial performance. This work has been ongoing for the past six months, and the initiatives we are implementing are taking hold. Today we'll discuss what these actions are and how they are directly improving our margins in the near term. Turning to slide six, we remain extremely focused on executing on our strategy, which consists of four pillars. Number one, implementing a market-driven business. Number two, leveraging our innovation leadership. Number three, driving operational excellence. And four, executing on synergistic M&A. I'll discuss each element of our strategy, which will enable us to achieve strong revenue growth and deliver sustainable long-term value to shareholders. As Bruce touched on, we've aligned Rogers' businesses to industries with strong secular growth trends. We believe our strategic positioning in these markets will continue to fuel growth long into the future. On slide seven, I'll discuss more on the areas of advanced mobility, which is where we see the biggest opportunity. First, the outlook for the EV market continues to strengthen. Last year, EVs and HEVs accounted for fewer than one in five vehicles produced globally. In 2026, we expect them to account for more than half of all production, or about 57%. That translates into a greater than 25% CAGR through 2026. Full battery electric vehicles, which represent the highest content opportunity for Rogers, is the segment of the market that is projected to grow at the fastest rate over this horizon. All this projected growth means that traditional OEMs and emerging EV companies alike are facing complex challenges as they work to improve efficiency and performance of their vehicles. As I'll discuss more in a moment through our innovation efforts, Rogers has developed several exciting products targeted towards the EV opportunity, making us an ideal partner for both existing and new customers around the world. Next, ADAS. There has been growing demand in the automotive market for increasing levels of vehicle autonomy, which is expected to fuel a low double-digit cogger in this market over the next five years. Next generation radar technologies are essential to the future of autonomous vehicles, and Rogers is helping to drive innovation in this space. We continue to strengthen our leading position in this market for both current and next generation programs. While these markets represent some of our largest opportunities, we have strong growth potential in several other areas. In clean energy, we have exposure to both solar and wind energy markets with our ceramic substrates and power interconnects. Combined, these markets are expected to grow at greater than 10% CAGR over the next five years. In the portable electronics market, 5G smartphones are expected to grow at a mid-teens CAGR over the next several years. And the advanced features of these phones provide a much higher content opportunity for Rogers versus prior generations. In aerospace and defense, where we also have a leading position, we expect to grow faster than the overall market, driven by increased funding for advanced radar and missile systems. Our end market strategy provides us significant diversification and is a key strength of our business. Moving forward, we are committed to constantly building our portfolio to fuel long-term, multi-year growth. Innovation has been fundamental of Rogers' success over the years. Our depth of technical expertise positions the company for success in fast-growing markets, both today and in the future. The fruits of our innovation efforts can be seen across our markets, particularly in advanced mobility solutions. I'll highlight these innovative products on slide 8. Both our AES and EMS business units are focused on the significant growth opportunities in advanced mobility, and especially EVs. In the AES business, we have content opportunities with both our ceramic substrate and power interconnect products. Our ceramic substrates are instrumental to silicon carbide and IGBT power modules used in EVs and HEVs. Our high performance solutions help increase inverter performance, which translates into longer EV range and lower total systems costs for OEMs. One example of recent success is a design win with a major European automotive OEN for their next generation EV models. This one is expected to lead to substantial growth over the next several years, beginning in 2023. Our fastest growing EV product over the past year has been power interconnects, which enhance reliable power distribution that is essential to boosting a vehicle's performance and reliability. A recent multi-year design win with our interconnect solutions at a major EV manufacturer delivered superior battery system management for our customer. In our EMS business, we have utilized our expertise in polyurethane and silicone materials to develop solutions that improve the performance and reliability of EV batteries. We have multiple products targeted to this space with battery compression pads representing the largest content opportunity. Our strong technical solutions have led to many design wins in this space including several with the largest global automotive OEMs. We have aligned our differentiated material solutions with fast-growing markets, and as I'll discuss next, we are investing to capitalize on these opportunities. Turning to slide nine. Over the past year, I have led our initiatives to improve our operational excellence. We took a hard look across our business to identify areas where we can make operational enhancements and have since taken several strategic actions to improve performance. These actions are beginning to take hold. Before I dive deeper, I would like to emphasize that all the past companies I've worked for are top quartile operating companies, and I've used this experience as well as a deep network to start initiatives to significantly improve our operations and supply chain capabilities. We have refined our processes, invested in better tools, and armed our team with the data they need to make rapid supply and demand decisions. We've also bolstered our team with strategic operators that are highly experienced and are continuing to hire leaders who will drive these efforts forward. This overhaul has been underway for six months, and we have made substantial progress. While the environment remains dynamic, we're being thoughtful in our approach to ensure we balance reducing costs while also supporting EVHEV growth and preparing for overall market recovery and the subsequent increase in demand. Turning to some of these efforts in more detail, we optimized our manufacturing output capacity and footprint to reflect current demand levels and ensure efficient and responsive service for our customers. As Bruce touched on, we have made several investments to this effect in 2022. In our EMS business, we are increasing our pour-on capacity in Europe and Asia to produce our advanced polyurethane material, which will be used in many different applications, including battery cell pads. This investment will enable us to capture expected EV demand growth in 2023 and over the next several years. We are also investing in expanding manufacturing capacity in Europe for our best in class ceramic substrate technology, which will enable further growth in the EV and clean energy markets. This investment will both increase output and drive productivity improvements to meet the sharp increase in demand for power semiconductor packaging over the next several years. In addition, we are driving efficiencies across our entire manufacturing network. This includes targeted actions to improve yields, reduce scrap rates, and drive increased throughput. We are also improving processes for sourcing of raw materials, driving logistic savings, and becoming more vertically integrated in certain strategic scenarios. As we execute on these efforts, we expect to return to historic levels of profitability over time as conditions improve. Turning to slide 10. strategic M&A has and will remain an important piece of our growth strategy. As an example, in October 2021, we completed the acquisition of Silicon Engineering, a leading European manufacturer of silicone material solutions. Silicon Engineering has proven to be an outstanding strategic fit with our EMS business, helping to strengthen our European presence and further support our ability to service our customers globally. We have retained the senior leadership team for this business and it continues to perform in line with our high expectations. Going forward, we will continue to look for opportunities to expand our capabilities and product portfolio through synergistic acquisitions in our key global markets. In closing, I believe Rogers has the right strategy in place to capitalize on the opportunities ahead. We have a leading position in growing industries, our team is engaged and dedicated, and we've taken actions across our business to sharpen our focus and improve operational execution. I'm confident in our ability to deliver long-term growth and value for our shareholders. With that, I'm now going to turn it over to Ram, who will discuss more about our year-to-date 2022 financial performance.

Thank you, Colin, and good afternoon, everyone. First, I want to express my appreciation to Bruce for his leadership in building the strong foundation Rogers has today. It has been a pleasure to work together, and I wish him well in his retirement. Along with all Rogers employees, I have tremendous confidence in Colin's ability to lead the company forward. I'm looking forward to partner with Colin to capitalize on the opportunities ahead. During the past year, our commitment to driving our strategic plan forward has not wavered. We have invested to capture growth opportunities that are happening now, and we have seen the momentum strengthen in our key market drivers. In my remarks, I will highlight the 2022 progress and performance and the actions we are taking to improve profitability. Turning to slide 12, I'll begin by reviewing our revenue performance for the first nine months of 2022. Year-to-date sales of $748 million increased 6.4% from the prior year and were tempered by foreign currency impacts of $22.8 million, or 3.2% of sales. Organic growth was driven primarily by a strong 40% year-over-year increase in EV sales, higher general industrial revenues, and commercial actions to address raw material inflation. The silicon engineering acquisition, which was completed in the fourth quarter of 2021, added $32 million of revenue. From a business unit perspective, AES sales slightly declined compared to 2021 as strong EV sales from both ceramic substrates and power interconnect product lines were more than offset by lower wireless infrastructure, ADAS, and A&D sales. Customer demand in these markets have been impacted by ongoing supply chain challenges and COVID restrictions in China. In addition, foreign currency unfavorably impacted AES sales by 16.4 million, or 4%. EMS sales for the first nine months of 2022 increased 17% versus the prior year. The strong growth was driven by EVHEV, General Industrial, and the acquisition of Silicon Engineering. Growth was tempered by portable electronics market where COVID restrictions and softening consumer demand has impacted sales versus the prior year. This was especially the case in Q3, which is typically the strongest quarter for this market, when we saw customers' factories in China shut down from COVID-related restrictions. Foreign currency adversely impacted year-to-date sales by 6.2 million or 2.2%. Turning to slide 13, 2022 year-to-date gross margin of 33.4% declined from 38.6% in the prior year. The change in gross margin is primarily the result of market impacts, operational challenges, and new capacity investments. I will provide context around these items and then discuss the immediate actions that are underway to improve margins. First, COVID restrictions in China and continuing supply chain disruptions have impacted customer demand, particularly in the RF solutions business within AES. The lower demand resulted in an unfavorable mix impact of 90 basis points and an additional 160 points declined from underutilized manufacturing capacity. These impacts occurred mainly in the third quarter. Also, in addition to the mixed impact, foreign currency fluctuations reduced margin by 70 basis points. Second, operational inefficiencies resulting primarily from supply chain challenges, lower yields, and productivity impacted margins by 160 basis points. Raw material costs have increased significantly versus the prior year and have been offset with commercial actions. Lastly, we are investing in new capacity and capabilities to capitalize on the significant EV growth opportunities ahead of us. This investment has had a 70 basis points reduction to our gross margin versus the prior year. Investment in new capacity and capabilities are expected to continue at these levels over the next two years. While we understand the importance of investing in the business to support future growth, We are taking deliberate actions to make immediate improvements to our margins. These actions include the following. Starting in Q3, we began flexing our capacity and cost structure in certain product lines to address the short-term market impacts referenced earlier. These actions will address the 160 basis points of underutilization impact and will have a partial benefit in Q4 and a full effect in 2023. To address the 160 basis points of operational challenges, we have implemented a series of actions targeting improvements in manufacturing yields, scrap rates, and productivity. These actions are expected to address about half of this decline in the first half of next year. Our operational excellence efforts will continue to drive further improvements beyond these near-term actions. In summary, the actions we have implemented are expected to improve gross margins by approximately 240 basis points by mid-2023. As mentioned earlier, market conditions also have a significant impact on our performance. These conditions continue to be dynamic, particularly in China, and we are closely watching any near-term impact of business. Turning to operating expenses, total year-to-date 2022 reported OPEX of $188.2 million increased $22 million versus the prior year due to higher SG&A and R&D investments. The primary driver of SG&A increase was $18.3 million of deal-related costs. On an adjusted basis, operating expenses are $156.7 million year-to-date September or 21% of sales As a percentage of sales, adjusted OPEX increased 30 basis points versus 2021 and is in line with our expectations. Turning to slide 14, I will next discuss our change in cash since the beginning of 2022 to the end of Q3. Note that this does not include the termination fee which is received in the fourth quarter. Ending cash, At September 30th was $236.5 million, a slight increase from the $232.3 million at the end of 2021. Year-to-date capital expenditures are $87 million. The majority of this investment has gone towards building new capacity and capabilities to capitalize on the growth opportunities in the EV space. Working capital increased $80.5 million, driven mostly by higher inventory. the increase in inventory was driven by restocking of certain raw materials to target levels in the first half of the year and purchases for new capacity coming online. Looking ahead, we anticipate working capital needs to moderate. Driving cash generation to provide resources to fund organic growth is among our highest priorities. As I've outlined, the steps taken to accomplish this include driving gross margin improvements carefully managing OPEX, and managing our working capital. As we drive these efforts forward, we expect to see measurable improvements in our operating cash flow relative to our year-to-date results. Next, on slide 15, I will review our capital allocation priorities, which remain unchanged. Our first priority is to invest in and drive organic growth. This investment is primarily in the form of capital to expand capacity. However, this also encompasses investments in R&D, sales, marketing and process improvements, which will enable us to maintain our differentiation, support our customers and scale our business. Second, we will look to pay down debt and maintain an efficient capital structure. we will have a strong balance sheet that will provide the flexibility for investments and potential acquisitions. Third, synergistic M&A will remain a top priority. As with the silicon engineering acquisition, we will focus on accretive transactions that further strengthen our product portfolio. Fourth, we will look to return excess capital to shareholders in the most efficient manner, including opportunistically repurchasing shares. To put this in the context of the termination fee, we are using the approximately 110 million net of taxes and transaction costs as follows. First, we plan to pay down 75 million on our revolving credit facility, which has been used to fund our capital growth investments in 2022. Second, we have repurchased stock for approximately 25 million in the recent weeks. In conclusion, on behalf of the Rogers leadership team, I would like to thank our employees for their dedication and efforts. Our growth strategy is impressive and well-defined. We will continue to invest in our business, both to expand capacity and to build capabilities that will help us prepare for the opportunities ahead. We have a well-defined path to improving our gross margins and have taken deliberate actions to improve our cost structure. These actions will result in meaningful improvements to our margins immediately and position us well to further advance our profitability as market recovers. I will now turn the call back to the operator for questions.

Thank you.

We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. you may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. And our first question comes from the line of Craig Ellis. Please proceed with your question.

Yes, thanks for taking the question. First, let me just start by saying, Bruce, congratulations on the retirement. It's been A real pleasure working with you over the years, and I really want to express that you've built quite a strong and well-positioned business, and Colin, Ron, look forward to working with you. The first question, I think, is really for Colin. Colin, when we look at the EV business, the business year to date, 40% growth, excellent growth rate. You talked about a market that has a 25% CAGR to it. The question is this. As we look at some of the design wins that the company identified, does the business have the potential to outgrow the market and be somewhere between that 25% and 40% with your design wins or with the law of larger numbers now that the business is as large as it is? Are we looking at more of a market growth business over the next couple of years?

So thanks for your

Craig, I mean, I'll start by saying we really feel this would be a key growth pillar for the company. And as we think about all of the things, it's where this particular market is really driving our capacity and how we're doing things. And it's across all different businesses within the Rogers business. It's a lot of different products within EMS. But then we also have great growth with our power interconnect business. and also with our ceramic substrates, and then also where the RF Solutions participates in ADAS. That's also not in EV, ATV, but automotive in general. We see that strong growth. And I think we mentioned we're in that range of 40% up this year, year over year, into this segment sales. And it will be a key component of our growth strategy for the next five years. We're putting a lot of focus on it.

Yep. Understandably, I'll flip the next one to Ram. Ram, on gross margin, nice to get the granularity. So it looks like we're expecting 240 basis points of gross margin expansion by mid-23. Can you talk about the linearity of getting there? And then secondly, there was the comment about getting back to historic levels of profitability. So I take it that's back to the 39 to 40% level that we were seeing in 2021. What are the ingredients that take us back there, and over what time period could we expect the business to get back to historic levels of margins?

Yeah, sure. Hi, Craig. So the improvements that we are working on, the 240 basis points are in place already. Like I mentioned in the call, this will, the full effect of that will come through in the first half of next year. won't see as much in Q4. Those actions are in place, and we are focused on correcting our cost line so that as the market recovers, you will start seeing the bottom line increase. So in addition to adjusting our excess capacity to meet demand levels, we are making productivity and improvement operational excellence programs in our facilities, particularly in the Keramic and the EMS plans to get immediate improvements and then continue our operational excellence to capture the 160 basis points we have lost from performance, if you may. So the 80 basis points should show up in the first half, and we will continue to work on the rest of them. And once that cost correction is made, the return, especially for higher margin products like RF Solutions, is what will get us further into the historic levels of profitability.

Got it. And then the last one's more of a qualitative question. It's for either you or Colin. You know, clearly there's been a very dynamic supply chain environment that's impacted your business. Can you just provide some color to investors on where those supply chain impacts may be getting better or less onerous to either revenues or gross margins? And where might things be becoming more adverse? Thanks for the color, guys.

So I'll start, Craig. Thanks for the question. I mean, we've been taking aggressive actions in many different areas to overcome some of the headwinds we've been facing. I mean, one example that we consider part of the dynamic macro environment is, for example, COVID in China. So COVID lockdowns in certain factories, whether it's our suppliers, or whether it's to our customers, are part of the supply chain impacts that we're referencing. I might mention that we've been fortunate to have no such shutdowns in our particular area where we operate in China. I think another issue that we sometimes see is we're prepared to supply and our customers are prepared, but then there's other shortages in the marketplace. For example, semiconductor chips. So customers can't run their full production, and that would be a supply chain area impacting us. And then finally, in some cases, our suppliers, the markets have gone short, and so we're not able to get as much materials as we need or want, or there's been shutdowns, et cetera, that have impacted us. So these are some of the things that have all come together as part of this macro environment that have hit us. And I'll kick it over to Ram, who can provide even more color.

So just to add to that, Craig, the shift, if you remember when we were doing our calls earlier, We focused on two components of the supply chain challenges. One was the lack of availability of raw materials, and the other was the inflation. We have adjusted or we have captured all the misses from the inflation through commercial actions. So we are set there. We are able to recover from that. The shortages, like Colin mentioned, continues to happen in certain pockets. And now where it's shifted more, again, like Colin mentioned, is on the indirect impact coming from our customers not having their full bills of material and inability to pick up products sometimes. So the downstream effect of supply chain impacting our customers is what we are facing and started particularly in the second half of this year.

Thanks, guys. I'll get back in the queue.

And as a reminder, if you'd like to ask a question, please press star one. Our next question comes from the line of Daniel Moore with SJS Securities. Please proceed with your question.

Good afternoon. Good afternoon, Bruce, Colin, Ram. Thanks for taking questions. Piggybacking on Craig's first question, maybe expanding it to The areas that you described, advanced mobility, ADAS, portable electronics, defense, you gave, you know, updated long-term sort of CAGR projections. How did those line up with your outlook for 23 in those areas, you know, the next year or two, given, you know, a little bit of macro uncertainty and headwinds, and what areas of lingering softness might offset some of that growth?

Hi, Dan. This is Ram. We are not giving guidance in this call. We are not getting into projections. We will get back on our normal cadence in the February call as we update you for the full year performance, and then we'll get into more of a Q3 guidance and have that discussion.

We'll get into that a little bit more. Sounds good. Maybe just talk about the level of customer engagement, and you touched a little bit on new product pipelines today relative to where we were 12 months ago when we last spoke.

Sure, I'll take that one. So I would say we have a high level of customer engagement. In fact, that's our business model. So explaining it just in a bit more detail today, our sales engineers who are highly technical react directly or interact directly with customer engineers. And so we work with them to understand the customer's unmet needs, their critical to quality or CTQ targets they're trying to hit. And then we get into this iterative process to solve their problems with a product that can meet their needs. And once we have that, that helps drive our business model and gets us locked in on the print and gives us our business going forward. So, I mean, I would say we completely and directly interact with customers quite often.

Very helpful. And Colin, maybe one more. The overall picture, extremely consistent with what we, you know, last saw six to 12 months ago. In terms of the transition of leadership, you know, are there any areas of differentiation just in terms of emphasis, be it M&A or Operating focus, pricing, are there certain areas that maybe you wanted to either revisit or lean into a little bit more as we go forward?

Sure, I'll mention a few things. First, I'm very energized to move forward. At Rogers, we have a proven strategy. We have significant end market diversification in growing end markets. We have a global reach and really strong talent. I'm very happy with the leadership we have in the company. And where you'll see a lot of acceleration or where the focus will be initially is we will accelerate that operational excellence piece. We've got to improve our short-term results, but then the capacity expansion will provide the foundation for this transformational growth we have in EV, HEV, and other fast-growing end markets.

Very good and helpful.

I will save a few more for our conference in January. Thanks and pleasure to meet you. It'd be nice to see you there, too.

At this time, we will poll for any additional questions. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you'd like to remove that question from the queue. And for any participants using speaker equipment, please remember to pick up your handset before pressing the star keys. One moment while we poll for any additional questions. Okay, at this time, I'm not seeing any additional questions coming in. I'd like to pass it back over to Colin for any closing remarks.

Thank you. Well, I'd like to say thank you all for joining us today. This was an exciting time for Rogers, and we appreciate your interest in our business. We look forward to sharing more updates on our strategy, market opportunities, and future expectations, including at our upcoming Q4 earnings call and later at our investor day in the first half of 2023. Thank you, and have a great evening.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.